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What exactly is gained when the government indicts traders who have profited from insider information? In this colorful account of the recent wave of indictments, veteran financial journalist Charles Gasparino questions whether these costly investigations are the best use of taxpayer money.

If Martoma did act on nonpublic information, he enjoyed a clear advantage over the losers on the other side of his trade. But as for his alleged victims, those investors who bought when he sold would have bought from someone else if he had not chosen that particular moment to sell. Moreover, by bringing additional selling pressure to the market, Martoma probably gave these buyers a better price than they otherwise would have obtained. In what sense, then, were they his victims?

Circle of Friends

Gasparino, a correspondent for the Fox Business Network, could have carried this logic further. If it wasn't Martoma who victimized the buyers of Elan and Wyeth shares, it was the delayed disclosure of the clinical trial's findings. The intrinsic value of the companies' stocks plummeted the instant the lab results came in, but share prices did not immediately adjust, precisely because of the prohibition against using inside information.

Prosecutors defend their crusade on the even more nebulous grounds that insider trading undermines confidence in financial markets, which supposedly impairs corporations' ability to raise capital and create jobs. But if that were really a perceived problem, the financial markets might find a solution without government help. Companies would have an incentive to respond to the problem by making it clear to prospective shareholders that they do not tolerate disclosure of insider information by their employees, and stock exchanges would seek a competitive edge by listing only those companies that comply with such rules.

But does insider trading really undermine confidence? The Dow's sharp rebound from its March 2009 low hardly suggests that investors have given up on stocks, however much those stocks may have been traded by insiders.

According to Circle of Friends—with the ungainly subtitle The Massive Federal Crackdown on Insider Trading—and Why the Markets Always Work Against the Little Guy—it was public outrage over the Securities and Exchange Commission's failure to convict anyone of causing the 2008 financial crisis that motivated the agency to escalate its pursuit of insider traders. While insider trading had virtually nothing to do with the financial crisis, prosecuting it has gotten easier over time.

The original New Deal legislation mentioned nothing resembling the present understanding of what constitutes insider trading. For the next few decades, the author observes, SEC lawyers "were for the most part making it up on a case-by-case basis," while upping the ante on penalties. A landmark 1961 case involved a stockbroker who profited from a director's tip that Curtiss-Wright would cut its dividend. Robert Gintel got off with a civil charge and a $3,000 fine. Today, a comparable violator would face prison time if caught.

By the time the financial crisis hit, the SEC had abundant opportunities to bring major insider-trading cases. The Financial Times found price spikes in advance of nearly two-thirds of all mergers and acquisitions. Some might say that has been a good thing, since it conveys information to all traders about the near future.

As Gasparino skillfully details, the regulators' growing success in detecting and convicting insider traders was not a matter of luck. For one thing, the Financial Industry Regulatory Authority dramatically improved its market surveillance system. Newfound cooperation between the SEC and FBI played a role, as did judges' increased willingness to authorize wiretaps for insider-trading probes.

As for the second half of this book's subtitle—"and why the markets always work against the little guy"—one can only assume these largely irrelevant words were thrown in by the publisher, based on the mind-set that financial-scandal books are always about the little guy, regardless of actual content. Circle of Friends is about the federal crackdown on some big guys who seemingly made money in a manner that violates our standard of fair play. That is defined as a crime, but it's not the sort of crime that leaves scars on its supposed victims.

MARTIN FRIDSON is founder and CEO of FridsonVision. His many books include Financial Statement Analysis: A Practitioner's Guide, co-authored with Fernando Alvarez.

Get Smart

Lute lessons, anyone?

Reviewed by Joe Queenan

Can Human Beings make themselves smarter? If veteran science reporter Dan Hurley is to be believed, the scientific literature strongly suggests that people can train themselves to boost their intelligence. "Despite what a century of skeptics have claimed," he writes, having recently hung out with some of these skeptics, "brain training is not bogus: Scientists have tested it and argued over it and reached a consensus that you really can make yourself, your child, or your parent smarter."

If only this worked with Congress.

Whether it will work with you is no cinch, since Hurley elsewhere admits that the issue is still a subject of debate among neuroscientists. There are still scientists out there who deny that increasing brain power is possible and who literally despise the scientists who say that it is, even calling them "snake-oil salesmen." But following Hurley's advice looks like fun and does no harm. It may also make you smarter.

Smarter: The New Science of Building Brain Power

Smarter begins with an inspiring account of how playing chess seemed to have helped several underachieving immigrants in a California high school increase their brain power. The implications are twofold: One, poor kids aren't dumb; get them involved in a rewarding activity and it can unlock the underutilized potential lurking somewhere inside them. Two, the brain is like a muscle. The more you use it, the less likely you are to lose it.

Then, having sampled and explained the current research on the subject of brain-building, the snarky, somewhat flippant author sets out to personally assess the value of various brain-expanding exercises, practices, techniques, and games, including popular offerings from Nintendo. We are thus treated to The Pop Science Reporter as Guinea Pig: My Year of Living Neuro-Scientifically.

Hurley sets up a personal cerebral boot camp, which involves computer training, engaging in intense physical activity, and ultimately taking up the lute. Few readers will see the lute thing coming. By the end of his adventure, based on various measures of intellectual firepower, he seems to have gotten smarter. Not a whole lot smarter. Not Albert Einstein- or Albert Gore-type off-the-charts smarter. But smarter.

Playing a musical instrument may increase brain power slightly, he finds, whereas strong-arming babies into listening to Mozart is largely discredited. Nicotine can make your brain solve problems more quickly. Not tobacco; nicotine. Physical exercise is massively important in increasing brain power. Learning a second language as an adult probably helps increase brain power. But he personally has no desie to do it. He would rather play the lute.

Smarter is not always an enthralling read. Hurley is a product of his times—the chummy, wisecracking science writer whose cuteness can become wearing. He is given to using generationally inappropriate Millennialisms like "mad deep" that make him sound like a middle-aged man desperately trying to seem with-it. His extraneous descriptions of his interviewees' clothes and hairstyles and his off-the rack pop-cultural references interfere with an otherwise engaging narrative. Nobody needs any more allusions to I Dream of Jeannie or Star Trek in a book about neuroscience. This is sometimes referred to as "padding"—not so smart.

JOE QUEENAN's book about reading, One for the Books, was just issued in paperback by Penguin.

Hot Air

Climate-change hypocrisy

Reviewed by Oonagh McDonald

This enthralling, hard-hitting, and exhaustive history puts the issue of man-made global warming in proper perspective, reminding us of past scares that came to nothing. Journalist Rupert Darwall, a former investment analyst and advisor to the United Kingdom's Chancellor of the Exchequer, ably captures the interplay between economics, science, environmentalism—and above all, politics—that characterizes the past and present debate on global warming.

As Darwall explains, environmentalism is rooted in the principle that man is the enemy of nature, from which it follows that our ability to overcome and transform our environment for human ends should be viewed as potentially destructive. That suffocating mind-set underlies belief in the threat of man-made global warming, an issue that first appeared on the international political agenda in 1988.

James Hansen, a scientist at NASA, announced at the time that the buildup of "carbon dioxide and other pollutants" was already warming the world, and would wreak havoc unless it was stopped. Just 17 years earlier, the same James Hansen had joined others in arguing that increasing CO2 plus aerosols was also causing climate change, except in reverse; in that case, the buildup would be "sufficient to trigger an ice age."

The Age of Global Warming

Hansen's new version of alarmism over climate change caught on rapidly. Scientists, environmentalists, lobbying groups, and politicians worked together to establish the Intergovernmental Panel on Climate Change under the auspices of the United Nations. The IPCC produces regular reports to "feed media interest" and "keep governments engaged."

Vast international gatherings continue to agree on what should be done to curb carbon emissions and who should do it. Delegates leave huge carbon footprints by arriving in private jets, sleek limousines, or business-class flight. The IPCC's First Assessment Report in 1990 argued that recent warming was not unique and that natural variability could explain the rapid changes in temperature between 1920 and 1940.

But caution and rigorous scientific examination soon disappeared. The Kyoto Protocol was established in 1997, binding government to drastically reduce carbon emissions. Sensibly, the U.S. did not ratify it. But ironically, this country has sharply reduced its emissions via the revolution in the use of hydraulic fracturing, which has produced cheap natural gas as a replacement for coal-based electricity. But predictably, fracking, as it is called, has been actively opposed by environmentalists.

It is still surprising that so many politicians swallowed the global-warming alarmism so readily, even including the usually hard-headed Margaret Thatcher, though she later recanted. Despite the fact that the Earth's climate has always changed, and even though carbon dioxide is such a tiny part of the atmosphere (up from 310 parts per million in 1955 to about 400 parts per million in 2013), no one seemed to wonder how man alone can be responsible for global warming. There is also the awkward fact that global temperatures have been higher in the past than they are now—and in any case have barely increased over the past 16 years, despite the continued buildup in the amount of C02. According to the models, the global temperature was expected to rise by between 0.2% to 0.9% compared with the actual 0.1%.

I eagerly await the updated version of The Age of Global Warming, which will cover the IPCC's Paris conference in 2015. According to Darwall, however, that meeting should be canceled for lack of evidence—and no doubt, for the huge net savings in hot air.

Author of Fannie Mae and Freddie Mac: Turning the American Dream Into a Nightmare, OONAGH McDONALD is a former Labour Party Member of the British Parliament.

More Than Just Money

A primer on the hot cryptocurrency

Reviewed by Jeffrey Tucker

"How can I get into the Bitcoin market?" a friend asked me last year. Since my friend's active involvement in matters of money has otherwise been virtually nil—he works as a choral director in London—his question gave me the momentary feeling that a Bitcoin bubble may be forming. Might his naive purchase be the cryptocurrency's last gasp before the price collapse?

For in truth, most people who are fascinated with Bitcoin do not care about the arcane issues that make Bitcoin special (the functionality of distributed networks, cryptography, and open-source protocols that operate as both payment systems and alternatives to nationalized monies). No, Bitcoin fascinates because it is now trading at about $800 per unit—down from a recent high of more than $1100—from less than $15 early last year.

Bitcoin Beginner: A Step by Step Guide to Buying, Selling, and Investing in Bitcoin

But in this case, at least, greed can be good. After all, the clamor for return has been the driving force of most great innovations. Maybe Bitcoin is the new Google, or better yet, the new gold.

As recently as a year ago, my friend would have found it hard to find coherent information on Bitcoin. The Wikipedia entry was incomprehensible. The forums required a crazy level of expertise. To the novice, much of the available information came across as techy gibberish. Today, however, there are dozens of guides available through the main channels, and new ones are appearing by the day.

Bitcoin Beginner, by Sam Patterson, is the No. 1 seller right now, and deservedly so. Patterson, who, like most Bitcoiners, is self-taught in the area of cryptocurrency, has written the clearest and most technically precise introduction I know—and that includes the one I wrote some 10 months ago. Patterson avoids too much technical jargon, but where necessary, demystifies technical issues.

The author dispels the myth that Bitcoin is some kind of elaborate Ponzi scheme. He begins with the most salient point, and the very thing that gets most people confused about this topic. We are used to thinking of money and a payment system as separate things. We have the dollar; that's money. Then we have our credit cards, our checks, PayPal, and bank transfers; these are all payment systems, separate from money.

Within Bitcoin, however, these two critical features are one. Bitcoin is both money and a payment system. The value of the money itself is not based on anything physical. Its value comes from the services that are wrapped up within it. Bitcoin makes possible the weightless and spaceless exchange of titles to ownership of digital units directly from person to person. The author rightly sees that the payment system of Bitcoin is its most remarkable feature.

What is the big picture and the potential promise of Bitcoin? The reinvention of payment systems, replacing high fees with almost invisible transaction costs; the displacement of third-party trust relationships that exclude vast swaths of the world's population from the matrix of exchange; and the obsolescence of banking as we know it.

Most extraordinarily, cryptocurrency could displace national monetary systems. Today, the dollar is comparatively stable, while Bitcoin, in terms of its exchange-value with the dollar, is subject to wide swings. But what if monetary expansion by the central bank brings the return of the double-digit price inflation suffered in the late-1970s? And what if the dollar's exchange value against the euro, yen, and yuan also becomes unstable?

Even those who view cryptocurrency as the wacko creation of authority-hating computer geeks might then begin to appreciate its practical uses. For them and others, Bitcoin Beginner is a good first step on that soul- and mind-enhancing journey.

JEFFREY TUCKER is CEO of Liberty.me and executive editor of Laissez Faire Books.